Keystone XL won't add to carbon emissions, report says

Independent study says Keystone would not add to greenhouse problem

FILE - In this Thursday, March 22, 2012 file photo, President Barack Obama speaks at the TransCanada Pipe Yard in Cushing, Okla. The president says that the proposed Keystone XL pipeline project from Canada to Texas should only be approved if it doesn't worsen carbon pollution. Obama says allowing the oil pipeline to be built requires a finding that doing so is in the nation's interest. He says that means determining that the pipeline does not contribute and "significantly exacerbate" emissions. (AP Photo/LM Otero, File)

FILE - In this Thursday, March 22, 2012 file photo, President...

The Keystone XL pipeline would not add to greenhouse gas emissions, according to a study published Thursday by an independent research group that echoed the findings of government-backed reports.

The study found that the addition of TransCanada's proposed pipeline connecting Canadian oil sands fields with the U.S. Gulf Coast - opposed by many environmentalists - wouldn't make a substantial difference in emissions because U.S. refineries would get similar crude from Venezuela or elsewhere.

Production, processing and transportation of Venezuelan heavy crude result in about the same greenhouse gas emissions as oil sands crude, according to the study by energy-focused research firm IHS CERA, which sponsors a major annual industry conference in Houston.

Environmentalists have argued that Keystone XL would add to greenhouse gas emissions linked to climate change and therefore fail a key test that President Barack Obama has set for determining whether his administration will approve the pipeline.

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Its northern leg requires State Department approval because it would cross an international border. The southern leg, running to the Gulf Coast from a hub in Cushing, Okla., is nearing completion.

Pipeline opponents argue that without Keystone XL, producers would have less interest in drawing crude from Canadian oil sands, resulting in an overall environmental benefit. An analysis from investment bank Goldman Sachs supports that argument, said Anthony Swift, an attorney for the Natural Resources Defense Council.

Goldman Sachs

The Goldman Sachs analysis estimated that there will be 230,000 barrels per day of excess Canadian oil sands crude production next year, since that production won't be able to reach markets.

The Keystone XL pipeline, if it is approved, could be completed in 2015, unloading some of that surplus, the Goldman Sachs analysis said. But in the absence of that pipeline and other options, the price of Canadian oil sand crude could fall dramatically, to as low as $50 per barrel - less than half of today's U.S. benchmark oil price - possibly resulting in lower production, the Goldman Sachs analysis said.

But IHS CERA found that even without the pipeline, production of oil sands crude in Canada would continue and would find other ways to markets.

Despite arguments from environmentalists to the contrary, IHS CERA found that rail transportation of oil sands crude is likely to be a cost-effective option for producers.

"Given sufficient investment, our view is that the economics for moving heavy oil sands crude by rail could improve further, even approaching pipeline economics," the report said. "Consequently, even without the Keystone XL pipeline, we believe that oil sands production would grow at a similar rate. Therefore emissions will be unaffected by the fate of Keystone XL."

Goldman Sachs also predicted a rise in rail as an alternative to pipelines for moving oil out of Canada, although it raised more questions about the overall feasibility of transporting Canadian oil sands crude.

Oil sands crude is made up mostly of bitumen, a solid, hydrocarbon-bearing material. To move it in pipelines, producers have to heat and dilute it, creating a substance of 70 percent bitumen and 30 percent diluents, according to IHS CERA.

But oil producers and refiners could move undiluted bitumen by rail, IHS CERA said, saving the costs of the diluting agents and reducing the volume transported by 30 percent.

"These savings offset some of the extra costs," the report said - estimating that rail would cost $6 per barrel more than pipeline transport.

Movements of pure bitumen by rail would require new infrastructure, which companies have not pursued because they have expected pipelines like Keystone XL to meet their shipping needs, the study said.

'Narrow the gap'

"However, if producers anticipate that new pipeline capacity will not keep pace with oil sands growth, we expect that they will make investments in more efficient rail transport, including equipment for moving pure bitumen," the study said. "These investments would narrow the gap between the economics of transporting oil sands by pipeline and by rail."